Better days ahead for Great Basin

Brendan Ryan | Mon, 09 Nov 2009 18:21
[miningmx.com] -- GREAT Basin Gold (GBG) had been through a rough year, but what management had put in place by the end of September would result in improvements over the next few quarters.

That’s according to CEO Ferdi Dippenaar, who acknowledged at a quarterly presentation on Monday that the decision to raise C$110m through the issue of convertible debentures came at a price.

He said: “That comes at a price, as some of our shareholders have let me know. There has been dilution.”

Shareholder reaction is caused by the fact that Dippenaar said the company would not need to raise more funds when GBG raised C$150m in March through a share placement at C$1.30 a share.

Instead, the balance needed to complete construction of the Burnstone gold mine near Balfour would be provided through bank funding. However, that process dragged on until it started to threaten the Burnstone construction timetable.

Dippenaar said: “We could not afford any negative impact on the project caused by not being able to draw down the facility, and we were getting close to that situation. “

Dippenaar said GBG had suffered from negative market perception because of lack of updates on the situation.

On June 10 he had said of the proposed loan funding that: “Significant progress has been made in the finalisation of a syndicate of banks for this purpose, with final credit approvals already obtained by some of the envisaged participants and in-principle approvals by the other potential syndicate members”.

He told Monday’s briefing that “our syndicate of banks went into a holding pattern” and that “we were busy finalising legal documentation and hedge execution, but there was a timing delay caused by the administrative processes in dealing with four equally mandated banks”.

Dippenaar pointed out the convertible debenture financing came “at a similar cost to project funding on a relative basis but with no hedging or other restrictions”.

He said: “The convertible debenture offering will fully fund the Burnstone project.”

One of the conditions for the loan funding was that GBG would have to hedge about 300,000 ounces of gold. That was equivalent to about 20% of Burnstone’s expected production over the term of the loan, which was put at a maximum of seven years.

Many investors prefer gold mining companies to be unhedged, so that they are exposed to the full upside potential of gold price movements.